| Equity pledges have become a way for more and more listed companies to raise capital because of the advantages of simple processing,few financing restrictions and unchanged shareholder control.However,while there are many advantages of equity pledges,there are also certain risk hazards.If the financial market fluctuates significantly due to macro factors or the company is in a negative crisis,the company’s share price will drop significantly and the company will be exposed to the risk of equity pledging.In order to cope with this risk,many companies will adopt market value management measures to enhance the share price,such as shareholders’ shareholding,implementation of equity incentives,share buybacks,etc.The existing literature suggests that share buybacks can effectively signal to the market that shares are undervalued and therefore can raise the company’s share price in a timely manner.For companies with equity pledges,share repurchases are a good choice to mitigate the risk of equity pledges.However,the impact of share buybacks on corporate value in this context is questionable.This paper adopts a combination of theory and case study approach,takes Wanfeng Aowei Company as the case study object,takes the 2018 stock market plunge and the existence of a high proportion of corporate equity pledges as the background,firstly,composes the relevant literature on equity pledges,share repurchases and the impact of both on corporate value;secondly,on the basis of studying the relevant theory,introduces the basic situation of Wanfeng Aowei Company,explains the controlling shareholders and the actual Secondly,we introduced the basic situation of Wanfeng Aowei and explained the motivation and characteristics of equity pledges of Wanfeng Aowei’s controlling shareholders and beneficial owners.From the perspective of the existence of a high proportion of equity pledges in Wanfeng Aowei,the real purpose of the enterprise to take stock repurchase is analyzed;thenthe impact of stock repurchase on the market value and intrinsic value of the enterprise under a high proportion of equity pledges is calculated from Tobin’s Q,financial indicators and economic value added EVA;finally,the path of impact on enterprise value is analyzed and summarized.From the above study,the following conclusions are drawn: First,in the context of high proportion of equity pledges,one controlling shareholder has the motive and ability to push listed companies to implement share repurchases,and share repurchases are reduced to a tool for controlling shareholders to maintain their own interests.Second,in the case of controlling shareholders’ equity pledges,opportunistic share repurchases by listed companies will negatively affect the market value and intrinsic value of enterprises.This is reflected in the decrease of Tobin’s Q and economic value added,and the weakening of financial performance.Third,the impact path of stock repurchases on enterprise value under high proportion of equity pledges is as follows: the false value signals conveyed by stock repurchases are gradually detected by the market,leading to a decline in enterprise market value;the implementation of repurchases increases enterprise financial risk and affects enterprise performance;the separation of two rights intensifies during stock repurchases,and stock repurchases become a stopper for controlling shareholders to implement benefit appropriation to listed companies,which damages the intrinsic value. |
